Imagine if income tax was eliminated and then you won the lottery and also were a cheapskate who would not really be a big spender anyhow. The current Powerball with the cash prize you would clear $267.5 M.
State would still take their cut.
But, it sure would be great if before the midterms and the holiday season, and before someone wins the Powerball, somehow Trump announces that the income tax is over for everyone.
The lottery tickets would fly for Thanksgiving and Christmas gifts, just to mark the no income tax “dream”. End of year present made by Trump.
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If income taxes were eliminated and replaced with a consumption tax (such as a national retail sales tax or Value-Added Tax / VAT), winning the lottery would result in no upfront or direct income tax on the prize itself, but your purchasing power would shift to how and when you spend that money.
What Changes When Winning the Lottery
• No Income Tax Liability: Under a standard income tax system, lottery winnings are treated as ordinary income and can push you into federal tax brackets as high as 37% (plus state income taxes, where applicable). With an income tax eliminated, the government would not take a percentage of your jackpot or cash prize at the time of the payout.
• No Mandatory Upfront Withholding: Agencies currently withhold 24% for federal taxes on prizes over $5,000, and winners often owe an additional 13% or more when filing their annual return. In a pure consumption tax model, this immediate deduction would disappear, leaving you with 100% of the cash or lump-sum value.
• Taxation Shifts to Spending (Consumption): Instead of being taxed on earning or winning the money, you would pay tax when you spend it. Buying a house, luxury cars, yachts, investments (depending on how the tax code treats financial transactions vs. goods and services), or everyday items would incur the national consumption tax rate.
• Real-World Impact on Wealth:
• If you save or invest a large portion of the lottery winnings rather than spending them immediately, those saved funds would not face an initial tax hit.
• However, whenever you eventually use those funds to buy taxable goods or services, you will pay the consumption tax at that time.
• Depending on how high the consumption tax rate is set (often proposed around 15% to 30%+ to replace total federal income tax revenue), large-scale luxury purchases could still carry a substantial tax cost, though it remains under your control based on your spending habits.